The Morrisons (LSE: MRW) share price has jumped on news of an unsolicited (and since rejected) £5.5bn takeover bid from US private equity firm Clayton, Dubilier & Rice. Time will tell whether we see a second bid for the UK supermarket chain. Perhaps a third party may enter the fray.
Regardless, I think we can safely say the UK stock market still looks an attractive hunting ground for opportunistic suitors. Here are two FTSE 100 companies that I think could receive interest in the near future.
FTSE 100 takeover target?
I’m naturally biased when it comes to ITV (LSE: ITV) because I own its stock. It’s also not the most creative of suggestions when it comes to potential takeover scenarios. The newly-promoted FTSE 100 firm has long been touted as a candidate following the miserable performance of its share price since 2015. If there’s a suitor running the rule over ITV however, I think time might be running out to get a great deal.
Based on its most recent update, I expect advertising revenues at ITV to continue rising as the coronavirus is sent packing. This should then allow the company to kick-start its dividend policy. Such a move would surely attract income investors back, further supporting the share price.
Of course, this could take longer than expected and there’s an opportunity cost of not being invested elsewhere. However, the firm will benefit from showing the delayed Euro 2020 football tournament as well as the return of popular programmes such as Love Island in the meantime.
For now, ITV trades on just 11 times forecast earnings. As normality returns, I’m starting to think it’s a question of ‘when’ not ‘if’ the company will be acquired.
In suitors’ sights?
Like ITV, luxury goods company and FTSE 100 peer Burberry (LSE: BRBY) is no stranger to takeover talk. Back in 2016, news leaked that the company had rejected numerous bids from US accessories brand Coach. However, I wonder if the £9bn-cap could become a target again after being thrown off course by the pandemic.
There’s certainly been no shortage of consolidation in the sector. For example, LVMH finally completed its acquisition of high-end jeweller Tiffany & Co at the beginning of 2021. It wouldn’t surprise me if the French luxury goods group began sniffing around Burberry. I’m not alone in thinking that more takeover activity in this space looks likely post-Covid-19.
Trading at 26 times forecast earnings, Burberry isn’t as cheap as ITV. This could imply that the shares carry more risk because recovery is priced in. Then again, this valuation certainly hasn’t stopped top UK fund manager Nick Train from recently upping his stake in the former.
Buy to hold
This is all speculation on my part. While it would be lovely to experience similar leaps to that seen in the Morrisons share price, I’d never buy into a company purely in hope of a takeover. No, I’m only interested in making investments that I’d be content to sit on for years. With their high returns on capital, strong brands, and sound finances, ITV and Burberry fit this bill nicely.
It remains to be seen whether a deal for the aforementioned supermarket is struck. However, some holders may bank some profit anyway. The Morrisons share price performance wasn’t exactly stellar before yesterday. Momentum could always dissipate if that second bid doesn’t materialise soon.
